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Intermediation by aid agencies

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  • Colin Rowat
  • Paul Seabright

Abstract

This paper models aid agencies as financial intermediaries that do not make a financial return to depositors, since the depositors' concern is to transfer resources to investor-beneficiaries. This leads to a significant problem of verification of the agencies' activities. One solution to this problem is for an agency to employ altruistic workers at below-market wages: workers can monitor the agency's activity more closely than donors, and altruistic workers would not work at below-market rates unless the agency were gen- uinely transferring resources to bene¯ciaries. We consider conditions for this solution to be incentive compatible.

Suggested Citation

  • Colin Rowat & Paul Seabright, 2004. "Intermediation by aid agencies," Discussion Papers 04-22, Department of Economics, University of Birmingham.
    • Handle: RePEc:bir:birmec:04-22
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    File URL: https://repec.cal.bham.ac.uk/pdf/04-22.pdf
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    References listed on IDEAS

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    1. Glaeser, Edward L. & Shleifer, Andrei, 2001. "Not-for-profit entrepreneurs," Journal of Public Economics, Elsevier, vol. 81(1), pages 99-115, July.
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    5. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    signalling; non-profit; wage di®erential; donations; altruism; two-sided market;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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